The Bergstrom Story Becoming the Best In the Business By Any Measure BITBAM Part I

Transforming a company can bring about many unpredictable challenges, but one thing’s for sure — it’s never dull!  In this article, Vistage speaker Gene Berg, executive vice president and chief operating officer at Bergstrom, Inc., shares the goods, the bads, the wins and losses he experienced in his four-year campaign to transform the company into a high performance culture.

Company Background

Bergstrom was founded in 1949, and Al Rydell bought the company in 1964. Today, the Rydells own the company 100 percent. Al has turned all the operations over to his son, Dave, but still remains involved in the business.

Transforming the Company

By all measures, Bergstrom — the leading provider of climate systems to the commercial vehicle industry — was considered a successful company, says Berg. It was privately held, had a strong balance sheet, and was well respected in the community. In 1992, however, Dave Rydell became uncomfortable with the way the company was being run and where it was headed. He began a massive change process that has turned the company upside down. According to Berg, Rydell’s main reasons for undertaking this dramatic change stemmed from the desire to:

  • Survive global competition. For a long time, Bergstrom’s competitors were U.S. companies of similar size. When huge European competitors entered the market, Rydell knew the company had to change in order to survive.
  • Create a company that is good for people. Ownership had just endured a nasty battle with union organizers and Rydell wanted to make it a company that nourished people rather than demeaned them.
  • Become a great company. Rydell wanted Bergstrom to become so great that it would serve as an example to customers and the community.
  • Increase contributions to employees and the Bergstrom Foundation, a charity foundation in Rockford.After covering its cost of capital, Bergstrom now gives 52.5 percent of its money to employees and the community.

Beginning in 1995, Bergstrom broke down the traditional assembly line and reorganized the entire company into “focused factories,” says Berg. “Every single machine, workbench and person was rearranged in some fashion.” “In particular, it reengineered the assembly line process, creating craft centers where, instead of doing parts of a process over and over, small groups of employees now build an air conditioning system from beginning to end, including testing and packaging. Each employee puts a tag on their finished products that says, ‘Built with pride by Joe Employee on xx date.'”

Bergstrom committed itself to becoming “the best in the business by any measure.” “Is it possible to be the best at everything? Probably not. But Bergstrom management considers it essential to their success to aim for that lofty goal. Their goal is for every function in the company to be the best in their industry,” says Berg.

Bergstrom turned the focused factories into business units and completely redesigned its human resources systems. It decentralized human resources but centralized paper and put areas like finance, accounting and painting in business for themselves. These units now charge their hours to other business units in the company. If those business units can find better quality for the same price or the same quality for a lower price, they can purchase a service outside the company.

Bergstrom has also changed its expectations for employees. “Every employee is now required to strive to become amaster of what they do. This has caused a 50 percent turnover at both management and front-line levels,” explains Berg. “Many people leave because they aren’t interested in becoming great at what they do. But now the company has an entirely different workforce, one that’s focused on high performance rather than just showing up to collect a paycheck.”

Three elements are essential to effectively managing employees: clarity of role descriptions, performance goals and a learning plan. “These create an equitable work environment for individual employees and the company. People know exactly what is expected of them, so that when someone isn’t getting the job done, it’s so obvious that the termination comes as no surprise,” Berg says. “The goal, however, isn’t to terminate people but to use the process to get them back on track and perform up to expectations.”

Results of Reegineering

As a result of the company-wide reengineering, Bergstrom has:

  • Increased productivity. Prior to the change, sales dollars generated per labor hour averaged $82 to $85 per hour. By the end of 1997, this was up to $125 per hour.
  • Improved its ratings with suppliers. Bergstrom used to be a level-C supplier. Now it’s a level-A preferred supplier. For one of its major customers, the company put together more than six million pieces without a defect to become a level-5 supplier.
  • Increased profits. Bergstrom improved the bottom line by three percent of operating profits.

Bergstrom’s compensation philosophy is to pay market rate and provide a share of profits when profits are made. “Employee benefits and profit sharing bring total compensation to well above market. Bergstrom always separates pay reviews from performance reviews. It also uses ‘invisible paychecks’ to show employees all the extras they receive above take-home pay,” Berg notes.

Unlike many companies that do assembly work, Bergstrom does not pay for piecework because it has found that it affects quality, teamwork and other issues. The company gives a Christmas bonus and has quarterly and annual profit sharing distributions. It also offers excellent 401K and health insurance plans, he continues.

“One of the biggest lessons Bergstrom management has learned is that incremental change doesn’t work well. Slow change is too painful,” he says. “If the change isn’t big enough or revolutionary enough, the old ways will beat you down. If you’re going to create organizational change, make it big and make it fast.”

Implementing the Change

Bergstrom used three specific strategies to implement the transformation.

  1. Use an outside change agent. Bergstrom brought in management consultant Lee Thayer as an outside expert/change agent.
  2. Compose the organization properly (put it together in a way that would facilitate high performance).
  3. Create a high performance culture.

“High performance most often comes from necessity,” says Berg. “The greatest motivator is when it becomes necessary to do something. The leader creates the necessity in the organization that drives the performance regardless of what people think their limitations are.”

Before the transformation, the Bergstrom factory was organized in the traditional functional manner — around process. Fabrication, welding, sub-assembly, painting and final assembly were categorized into separate departments. With 1,400 different heating and air conditioning systems and 16,000 part numbers, it was an enormously complex process, Berg says.

“During the transformation, Bergstrom composed itself into small business units call ‘focused factories.’ These involve multi-disciplinary teams that complete a task from beginning to end,” he says. “The order comes in, the team produces it from beginning to end and ships it out the door. A year after reorganizing operations, Bergstrom put a support group with each unit: engineering and sales and marketing. Each of these formal business units now has its own P&L,” notes Berg.

Bergstrom focused on three main principles that underlie this kind or organizational structure:

  1. Decentralize and put people in business for themselves. “Let people have a P&L and play the game of business. This invigorates people and tells you where your costs are,” Berg says. “There are some extra costs to doing separate profit and loss statements, but you really know what is going on with the business, with markets, and with individual customers.”
  2. Keep the paperwork, payroll, finance and accounting central.
  3. Form small business teams organized around a customer or market, not functional operations.

Bergstrom defines high performance as, “We aim at being better at everything we do than our competitors.” Its mission is to be best in the business by any measure. In most cases, but not all, they have measurements for each category. Currently, Bergstrom is trying to decide what it means to be the best in engineering in its industry.

“Bergstrom is purpose-driven rather than profit-driven,” Berg says. “That can be dangerous, because if you don’t have profit, the company dies. But people don’t get excited about coming in to work each morning to make a profit. They do get excited about becoming the best in the industry.”

Bergstrom’s owner, Dave Rydell, is committed to making the organization great. For him, high performance is a way of life, not a journey with a fixed end. “He also believes you can’t overestimate the difficulty of achieving high performance. It’s both gut-wrenching and very exciting. You may not ever get there, but you’re always on the path.”

To create a high performance culture, don’t work directly on the culture itself. Instead, focus on the things that create a culture. Culture is a result of actions taken. In particular, create the necessity for high performance.

Performance Expectations

To create the necessity for high performance, Bergstrom instituted a role description, performance goals and learning plan for every employee.

Role descriptions are based on accomplishments, not activities. They are also based upon the very best in the industry, on things it takes people years to accomplish. People get very energized by the vision of what they can be, and not only what they can be but what they have to be.

For example, Berg’s role description includes performance expectations such as:

  • Setting clear performance and continuous expectations and making sure the company exceeds them
  • Doing whatever has to be done to be the best operations person in the industry in terms of knowledge, skills and reputation
  • Insuring that operating teams are the best informed, best trained and most highly empowered in the industry
  • Creating operating and communications systems superior to any in the industry as measured by efficiency, quality, profit margins and customer and employee satisfaction
  • Selecting high performance people and empowering them to become the best in the industry

Bergstrom also uses “smart systems” to drive the necessity for high performance. These systems include recruiting, training, leadership and “mastery” programs. When you focus on these things, a high performance culture happens by itself.

The Mastery Program

Another key smart system for Bergstrom is its Mastery Program. Everyone has to work on being a master at what they do. The role descriptions create a kind of moral obligation to make Bergstrom a great organization. Having a high performance workplace offers a great opportunity to make society better because employees take what they learn and the confidence they gain home with them.

Employees have to apply to become a master. It is almost like an academic thesis. They get two hours paid per week to work on it, but any other time invested is on their own. Each person fills out a 10-page mastery application that asks questions like:

  • What does the company mission — best in the business by any measure — mean to you?
  • How do you know your customer’s expectations? Use specific examples to describe how you have exceeded the expectations of your internal customer.

They must supply letters of recommendation from their peers and supervisor. Their trainer has to document that they have learned the essential skills of the job, says Berg. “In the final step, they get grilled by five other masters in their work area. The process has a 25-30 percent failure rate. When people fail, they have to wait six months before applying again. Masters also have a rigid code of conduct they must adhere to within the workplace.”

Once you get a critical mass of masters in the organization it creates enormous peer pressure to raise overall performance. Employees will fire each other if they don’t live up to performance expectations. The areas with a number of masters almost become self-managing. “Although Bergstrom still has fairly high turnover, there is almost no turnover among people who achieve the master level,” says Berg.

“Achieving mastery changes people’s lives in many ways, inside and outside the business,” says Berg. “Some people leave to start their own businesses. Others go back to school to obtain graduate degrees. The skills and confidence gained in the process of becoming a master touch all parts of life.”

At the same time, Bergstrom has found that only a certain percentage of the workforce has an interest in achieving mastery, he explains. “A large percentage just want to show up, do their job, collect their paycheck and go home. This makes it tough to hire, especially in a market of virtually full employment; but to have a high performing organization, you must hire only those interested in becoming masters.”

Vistage speaker Gene Berg is executive vice president and chief operating officer for Bergstrom, Inc., a Rockford Illinois-based leading climate system provider to the commercial vehicle industry.

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